Developing a Sustainable Islamic
Finance Through Genuine
Islamization
Mohamed Aslam Haneef Department of Economics &
Synopsis
• IBF has made tremendous progress over the last 4 decades but still criticised
on ‘authenticity’ issues, blamed partially on ‘Islamization’ efforts that are equated with ‘patchwork’
• In actuality, Islamization of Knowledge (IOK) is an important intellectual
response to modernity in the 20th century; Part of ‘islah’ and ‘tajdid’ movements throughout Islamic history
• IOK calls for genuine creative synthesis of both Islamic heritage and
contemporary knowledge. However, IOK has been misunderstood at the
intellectual level; the term ‘Islamization’ has been abused at the practice level
• ‘Genuine Islamization’ is needed, both at the academic and practice levels, if
we want to have sustainable IBF.
• Creating Qualified Human Resource/Scholars and IBF practitioners is central in
Outline of Presentation
I.
IBF at 40- Positive Impact but With Tensions
II. Central Challenge- Qualified Human Resources
III. Need for Genuine Islamization
IV. Islamic Economics and Islamization
I. IBF over the last 40 years
• Islamic banking and finance (IBF) has become, rightly or
wrongly, the main practical manifestation of Islamic
economics and of the ‘Islamisation of economics/knowledge’ project that began in the mid 1970s.
• Track record of IBF is impressive in terms of numbers and to a
Despite the positive strides made, there have
also been criticisms of IBF, for example
1. issues of ‘islamicity’ and ‘originality’ (of products and instruments)
2. issues of products and instruments used (especially between academics and
practitioners)
3. issues of qualifications of those involved in academia and IBF practice
Tensions in Contemporary IBF
1. How Islamic is IBF?
- theory of IBF vs. practice of IBF; theory of debt financing vs. practice of debt financing
2. Are we asking the right questions?
- modifying instruments vs. going beyond; trying to fit shari’ah into current banks vs. do we need banks; other types of IFIs?
3. What is Shari’ah and its implications on IBF?
II. Central Challenge- Qualified Human Resource
•
IOK requires interaction between
turath
al-Islamiyy
and modern knowledge
•
Meaningful and genuine IOK (i.e genuine creative
synthesis) requires qualified scholars who are
Problem with Scholars
•
Modern economics and finance scholars- the main
developers of Islamic economics and finance
• Have they ‘mastered’ their modern disciplines, especially the
history and philosophy aspects?
• Do they have sufficient knowledge of Islamic heritage? Are taking
a couple fiqh courses sufficient?
• Some may have ‘mastered’ modern finance but knowledge of
turath is minimal or even non-existent; some even look down on ‘Islamic’ dimension as they see it to be ‘khutbah material’.
Traditionally Trained Scholars
• Great expectations from them since ‘Islamicity’ of IBF depends on them
• However, many have not really ‘mastered’ turath. Usually limited to
knowledge of fiqh rather that the full spectrum of the turath (in many
universities in the Muslim world, Islamic economics is found in the Faculty of Shari’ah (Law), rather than in the Faculty of Economics)
• Exposure to modern disciplines of economics and finance minimal, if any.
Hence, ‘subservient’ to the existing modern frameworks (and the dictates of IBF industry); wait for change to happen in modern finance first!
• Some modern scholars who are inclined to Islamic economics are accused
of having shallow knowledge of modern disciplines; some are criticised if their views go against mainstream and if they do not display use of
Cases
1. Role of Stock Market in Economy
To allow for ownership and long-term participation in the economy; not short-term liquidity and hence, proliferation of speculation; Mid 1980s article in Islamic economics vs. recent article in Economist
2. Waiting for Change to be Initiated by Others – why the reluctance/inability to move?
Sale contract requires ownership of asset that is being sold. In IBF practice, this is ‘questionable’, partly due to legal
framework. Why this framework not changed?
III. IBF at Cross
roads-Need for Genuine Islamization
•
IOK calls for
genuine creative synthesis
of both
Islamic heritage and contemporary knowledge
•
Genuine Islamization is needed,
both at the
Islamization of Knowledge
• Although one could argue that IOK began with revelations
from Allah and in particular, the revelation of al-Qur’an; was continuously renewed over the centuries by reformers and scholars, for purposes of our presentation we will focus on IOK in the later part of the 20th century
• Many scholars in many parts of the world contributed to the
reform movement; to seek indigenous solutions to problems faced by the ummah
• For the current topic- Late 1960s and 1970s saw IOK
Why IOK?
• Ummah plagued with numerous ills
• Source of problem is in realm of knowledge and education • Corruption of knowledge and Dual education system
• Modern disciplines taught in Muslim countries are basically
‘western’ i.e. they developed over the last 300 years in western Europe/ America
• Based on worldview, portrays values of modern western
What needs to be done?
•
Rebuild knowledge frameworks according to twin
epistemological sources of
naqliyyah
and
aqliyyah
•
Integrated education system
•
Develop disciplines that will solve problems of
ummah and humanity
•
Convert/Transform those theoretical frameworks
IV. Islamic Economics and
Islamization
• Although writings on IE can be traced to the 1940s, before
1980s, writings on Islamic economics were not specifically talking about ‘Islamization of economics’
• writings of pioneer Islamic economists like Mahmoud Abu
Cont.
• The works of subsequent 2nd and 3rd generation scholars presented
Islamic economics in the form of ‘Islamized modern economics’, albeit in more sophisticated/robust works, either attempting to
modify neoclassical economics or adding elements from alternative schools
• However, very few, if any, truly focused on ‘methodological and
epistemological’ concerns.
• But IOK/IOE is by definition and interactive and methodological
concern. Hence genuine IOE was not given proper attention.
• What we found was IBF had ‘hijacked’ the agenda (even name of
IOE in Practice
• Practical dimension of Islamization in late 1970s but especially
1980s
– Pakistan – Iran
– Sudan – Malaysia
Why IOE?
• Based on IOK agenda, modern economics is not value-free
nor is it ideology-free.
• All modern disciplines in the social sciences taught in
universities in the world were born in the last 300 years and have ‘foundations’ that represent western European history and experience (Read al-Attas, 1978, Ch. 1)
• Many aspects of this worldview (and its implications on the
way we see the human being and relations to other human beings and nature) may not be in line with the Islamic
Al-Attas (1989)
What is needed?
• Critical examination of the methods of modern science • Of its concepts, presuppositions (assumptions) and
symbols
• Its empirical and rational aspects and those impinging upon values and ethics
• Its theory of knowledge
Why IOE - Practice?
• Muslim society demanded indigenous solutions to
economic/development problems
• 1980s saw establishment of ‘Islamic institutions’ in Pakistan,
Iran, Sudan and Malaysia
- Islamic Banks were established to show that it was possible to offer Islamic alternative to conventional banks
Performance so far?
What is IOE?
• Based on the IOK agenda, IOE by definition, implies critical
interaction/dialogue with modern economics. (even critics of IOK/IOE do not disengage completely)
• Critical evaluation of not only modern economics
but its foundations too
• One major weakness in contemporary Islamic economics
What is IOE- cont.
• IOE is (based on IOK)
– de-westernizing modern economics and then infusing it with Islamic
values/principles
– Recasting modern economics by eliminating, amending, reinterpreting
and adapting its components according to worldview of Islam and its values/principles
– Both the above imply that focus of IOE is primarily an epistemological
What is IOE- cont.
•
Practical dimension- ‘Patchwork’?
– Islamic banks have been established
– Islamic banks accused of replicating practices of
conventional commercial banks, but making it ‘shari’ah
compliant’- this has been (mis)termed by some as ‘Islamization’
V. Operationalizing IOE
and the
Islamic Heritage Modern Knowledge
IOE and Curriculum/Textbooks-cont.
• Can we use the modern economics textbooks?
• Should we maintain the textbook outlines of modern
economics?
• Should we attempt to infuse ‘Islamic input’ at the end of the
chapters or infuse Islamic input in every topic/section?
• Or should we separate the Islamic input from the modern
economics in different courses/ programmes?
What is IOE in Practice- cont.
• Can we Islamize conventional commercial banks? • Can we adopt the practices of conventional banks?
• Can we use the evaluation criteria used to evaluate the
performance of conventional banks?
• However, in IOK- some degree of assimilation is needed. How
and What?
Operationalization
- The Need for Human Capital
• Before undergraduate/ graduate curriculum can be effective,
we must give prior attention to the academics that are going to present this integrated curriculum and in the reference
materials/textbooks that are to be produced.
• ‘Creating qualified academics’ must be addressed first or at
least simultaneously.
• IOK agenda is meant for academics
• At the same time, there is also a need to create qualified
Challenges in Realizing Genuine
Islamization: The Academia
1. ‘Mastery’ of modern economics
Substantive knowledge
– Is neo-classical/keynesian economics enough? – What level of theory sufficient to perform IOE? – What about other schools of thought?
– What about other disciplines like history, sociology,
Cont.
– Cannot have IBF without IE.
– Cannot develop genuine IBF based on conventional economics base. – Cannot have IE without its foundations (philosophy).
– Cannot have meaningful IBF without giving attention to ‘foundations’.
Very few exposed to this.
– How will this affect our textbooks?
– Need to look at our present human resources, our exposure, strengths
and plan for the future with our objectives in mind.
– Have neglected very important dimensions in our human resource
Challenges in Academia-cont.
2. ‘Mastery of the Heritage’
Substantive knowledge
– What from our heritage is relevant to develop
contemporary Islamic economics?
– Current emphasis is on fiqh and to a lesser extent usul
al-fiqh? Is this sufficient?
– What about kalam, falsafah, history? Ulum al-Qur’an and
Cont.
•
Methodological knowledge in Islamic heritage
– Very little, If anything is available and is being taught
(besides the usul al-fiqh courses)
– Is knowledge of Usul al-Fiqh sufficient to develop
contemporary Islamic economics?
– we need to develop a new discipline ‘Methodology of
Challenges in Academia-cont.
3.
Creative synthesis i.e Integration between turath al-Islamiand modern knowledge/economics, knowing what to
eliminate, reject etc, and how to interpret and approach the problems faced in society today, cannot be considered
separate from the process of thinking itself.
The lack of (1) and (2) has not enabled us to do (3),
To build Islamic economics
• We need to have a body of knowledge that we call Islamic
economics (nature, scope and definition)
• We must be able to argue (rationally, coherently, logically)
the reasons how and why that body is legitimate and the principles that make Islamic economics legitimate
• We must be able to develop theories based on our
assumptions and to translate these into practice
• Ultimately, IE/IBF must be ethically superior to conventional
Challenges to Genuine
IOE-IE/IBF in practice
• Need for detail knowledge of who run IBF industry
• What knowledge and skill are required? Strengths and
shortcomings?
• The need for training and education- content provided must also
create thinking out of the conventional box
– Is it necessary to have bankers take one or two courses in fiqh or better to
provide the operational side of genuine IBF?
– Important to provide ‘foundations’ to bankers in an appropriate way
• Require to amend laws etc. to allow Islamic banks to function; even
more important the political will to deliver
Conclusion
1. IBF has made tremendous strides.
2. For sustainable IBF, need genuine Islamization- ask right questions and understand what we want to do
3. Genuine Islamization based on IOK agenda i.e. knowledge and education is primary focus, ultimately focusing on
creating qualified human resource
4. To operationalize genuine Islamization, academics must
acquire pre-requisites, especially in the foundations of both the heritage and modern economics. In substantive
Conclusion-cont.
5
. In-house exposure to these issues for short term solution, but proper HR planning is the way out for the long term6. For the industry, there must be proper HR planning to send the practitioners for further training and education to expose them to both the heritage and modern finance.
7. Genuine Islamization also requires political will and legal/institutional reforms
8. Academic institutions have to find ways to cooperate and
